Fed’s Preferred Inflation Measure Hits 7-Month Low

The U.S. central bank is not expected to cut interest rates until September.

The Federal Reserve building is seen in Washington, U.S., January 26, 2022. Joshua Roberts/Reuters

The Federal Reserve’s preferred inflation measure inched closer to the U.S. central bank’s 2 percent target in April.

According to the Bureau of Economic Analysis, personal consumption expenditure (PCE) inflation slowed to 2.1 percent last month, from 2.3 percent in March. This is the lowest reading since September 2024.

Economists had anticipated a print of 2.2 percent.

Core PCE inflation, which omits the volatile energy and food prices, also eased to 2.5 percent in April from an upwardly adjusted 2.7 percent in the previous month.

Both PCE and Core PCE inflation edged up 0.1 percent monthly.

The narrower supercore PCE, which concentrates on core services excluding housing, dipped into negative territory from March to April.

The Fed prefers the PCE because it is updated more frequently and the basket of goods and services is broader than the Consumer Price Index (CPI).

“This PCE report confirms continued disinflation, despite the refrain from everyone that disinflation isn’t possible in this environment. As Alan Greenspan would have said, it’s a conundrum,” Jamie Cox, a managing partner for Harris Financial Group, said in a note emailed to The Epoch Times.

Additionally, U.S. government data indicate that personal income increased at a higher-than-expected pace of 0.8 percent in April, up slightly from 0.7 percent in March.

Personal spending inched higher by 0.2 percent, down from 0.7 percent.

The personal saving rate—personal saving as a percentage of disposable personal income—ticked up to 4.9 percent.

Market Reaction

U.S. stocks were in the red before the opening bell.

Investors ostensibly shrugged off the inflation numbers and focused more on President Donald Trump’s latest Truth Social post.

The president accused China of violating the trade agreement with the United States.

“Two weeks ago, China was in grave economic danger! The very high Tariffs I set made it virtually impossible for China to trade into the United States marketplace which is, by far, No. 1 in the World,” he said.

“The bad news is that China, perhaps not surprisingly to some, has totally violated its agreement with the United States. So much for being Mr. Nice Guy!”

Yields on U.S. government bonds were mixed, with the benchmark 10-year Treasury yield firming above 4.43 percent.

A measure of the greenback against a weighted basket of currencies strengthened slightly at the end of the trading week.

The U.S. dollar index rose 0.2 percent and is poised for a weekly gain of about 0.3 percent.

Year-to-date, it is down more than 8 percent.

Waiting for Clarity

Despite both CPI and PCE inflation inching closer toward the Federal Reserve’s 2 percent target, monetary policymakers have not signaled an interest rate cut is coming anytime soon.

Minutes from the May Federal Open Market Committee (FOMC) policy meeting, published on May 28, indicate that officials will be in a wait-and-see mode.

Since the U.S. economy is holding steady, the central bank thinks it can afford to be patient and wait for greater clarity.

“Minutes from the May 6–May 7 meeting of the FOMC reveal a blessing in disguise,” Jeffrey Roach, the chief economist for LPL Financial, wrote in a note emailed to The Epoch Times.

Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill in Washington on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

“The economy is holding up well enough for the Fed to wait until successful trade negotiations provide some clarity on the outlook.

“The labor market would have to meaningfully deteriorate before the Fed would consider cutting rates.”

The Bureau of Economic Analysis released its second estimate of first-quarter GDP, reporting a slight upward revision to the growth rate.

In the first three months of 2025, the U.S. economy contracted 0.2 percent, up from the initial report of negative 0.3 percent.

Employment indicators also signal that the national labor market remains intact.

Next week, the May jobs report is expected to show 130,000 new jobs and an unemployment rate of 4.2 percent.

Some economic observers believe that cracks might be forming in the labor arena.

According to the Department of Labor, the number of Americans filing for first-time unemployment benefits rose by 14,000 to a one-month high of 240,000.

Continuing jobless claims—a gauge of the number of individuals currently receiving unemployment benefits—surged to 1.919 million, the highest level in nearly four years.

“Looking at the most recent jobs data, layoffs are still fairly low, but laid-off workers are sitting unemployed for longer than a year or two ago,” Comerica Bank chief economist Bill Adams said in a note emailed to The Epoch Times.

As for inflation, price pressures have yet to materialize in the hard data. However, early estimates suggest next month’s reports might show a slight uptick.

The Cleveland Fed’s Inflation Nowcasting model estimates the headline annual inflation rate will edge up to 2.4 percent from 2.3 percent. Additionally, the PCE inflation price index is expected to come in at 2.4 percent.

Whether the data or Fed commentary, the futures market is not anticipating the U.S. central bank to resume its rate-cutting cycle for a few more months.

According to the CME FedWatch Tool, traders are betting the next quarter-point rate cut will happen at the September FOMC policy meeting.

“We haven’t heard much from the Fed this year, and if the data continues like it has so far, then they are likely to stay in the background,” Chris Zaccarelli, the CIO for Northlight Asset Management, said in a note emailed to The Epoch Times.

Despite tariff and trade policy dominating the business news cycle, there have been very few inflation and unemployment surprises, he said.

“The Fed has been able to stand aside and leave rates unchanged,” he said.